What Is Corporate Venture Capital and How are Real Estate Firms Using it?

While the major real estate industry players seem to have made the headlines every other day with a new SPAC announcement, you may have overlooked the fact that some of them have their own in-house venture capital firms to invest in early-stage proptech companies.

What does this mean and why are real estate companies launching their own corporate venture capital guns to invest in proptech?

What is corporate venture capital?

In the broadest sense, corporate venture capital is the investment of company balance sheet funds directly in startups. A good venture capital fund will be able to source and identify solid companies from the ocean of tech startups while also supporting them and adding value outside of check writing.

The logic behind corporate venture capital is generally threefold.

  1. The corporate venture capital team can use its knowledge, industry expertise and know-how to determine the marketability of a startup.
  2. After the investment, the company can support a startup by either becoming a customer, introducing the team to other potential customers, or providing industry knowledge at an expert level.
  3. Companies can use their corporate venture team to keep an eye on emerging industry trends.

This works great in theory, and the best corporate venture capital arms can be very successful. That said, it is difficult to execute successfully. For example, while it’s nice to have industry experts providing feedback on a startup’s marketability, new tech companies are inherently disruptive and transform the industry. In general, if you’re a really early investor, you rely on the team building the startup.

Proptech refresh

Real estate technology (or proptech) is the use of technology to increase the efficiency of real estate, which ultimately leads to improved returns on investment, less friction and greater transparency.

In 2019, over $ 30 billion in venture capital was invested in Proptech. Technology is used by every type of property investor, from institutional investors to homebuyers to property managers.

Examples of proptech companies you’ve probably heard of include Airbnb (NASDAQ: ABNB), a vacation rental listing website; Zillow (NASDAQ: Z) (NASDAQ: ZG), a home sales website; and Opendoor, an iBuying platform.

How the real estate industry uses corporate venture capital

Back to the logic of corporate venture capital in general, it’s pretty clear why this makes sense in the real estate industry.

  1. Real estate firms have a wide variety of industry knowledge and connections that can move the needle for an early-stage startup looking for scalability.
  2. These real estate firms have space for the startups to manage their technology and scale.
  3. The industry is generally slow to move so you can see what to expect.

Corporate venture capital strategies are used by both real estate companies and major players in the construction industry.

Traditional real estate companies

JLL (NYSE: JLL) has its own $ 100 million fund, JLL Spark. Since launching in 2017, JLL spark has made over 20 investments and Co-CEO Yishai Lerner says the company “believes that proptech will be the next wave of innovation and we are determined to drive that transformation.” Lincoln Property Company has a special corporate venture capital fund it calls LPC Ventures. RXR Realty also has its own venture fund.

Construction companies

Two of the more active players in the construction industry with their own venture arms are Suffolk Construction and CEMEX. Boston-based general contractor Suffolk Construction invests in “building lifecycle solutions, including real estate investment and development, architectural engineering and construction, and real estate management.” CEMEX is a Mexican multinational building materials company “investing in innovative building foundations to drive the revolution in the construction industry”.

The bottom line of Millionacres

Real estate players dedicate money, resources and time to Proptech. These companies can not only participate in the future of the industry by investing in start-ups, they can also closely observe which trends are emerging. It is important for real estate investors to understand and keep track of how the big companies think about proptech.